Friday, April 4, 2008

Corporate Noteholders: Investing In Becoming Critical?

By: Ross Hendin, Hendin Consultants

In yesterday's Financial Post article, Mid-Sized Investors Plotting To Unite, John Greenwood has told the ABCP market and all its spectators that the minority noteholders (those that are corporations holding ABCP, rather than the retail noteholders that are individuals) are considering posturing for a bailout themselves. Their wanting a bailout is perfectly natural, as said to John by a CFO of another mining company:

"You do something for one group and not for everyone else... I don't see how they can offer this deal [to retail investors] but not to the others."

Where corporations have understood that because they are a minority in terms of the number of votes they have, and the amount of paper they hold relative to the market size, simply threatening to vote "no" is not compelling enough to push anyone to buy their paper and risk a loss of their own. But does this mean that corporations are stuck going along for the ride? Not necessarily. The same thing that limits sympathy for the corporate noteholders also empowers them in a way that the retail clients are not able to think or move: their resources. Corporations holding ABCP have a relatively less severe reality to retail noteholders, but they also have resources to take any actions or devise any strategies they want, which makes this group potentially critical on a very different level.

The corporate noteholders have deep pockets, and while some corporate noteholders feel that sending lawyers after the banks is just throwing good money after bad, many others realize that their are a number of ways they can try to collect through different legal and public relations strategies. These companies have now seen the retail investors organize and become vocal, and have taken notes on what they did right, and what can be improved. For example, should the corporations start a Facebook group? Probably not, but they may have learned that one company who emerges as overly vocal and calling to arms may find others easily. They may also have learned that the tragic stories of the retail noteholders are far more compelling than the woes of a company that remains cash-flow positive, but that does not in any way stop them from telling the market about potential legal remedies should they vote "no", or about critical insights they have found making a "yes" the right option.

As long as a few corporations see organizing and building a strong strategy for themselves as a smart way to hedge their bets, I will not dismiss them as an irrelevant minority. I have had enough conversations with counsel over the last number of months to know that there are a number of different strategies / concepts out there that are just waiting to be explored, and after reading this article, it looks like there are more than a few companies ready to explore them.

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